Bombay HC Sets Aside ESIC Order For Denying Hearing And Relying On Undisclosed Reports

Bombay High Court: A single judge bench of Justice Sharmila U. Deshmukh set aside the Employees' State Insurance Corporation's (ESIC) rejection of Mondelez India Foods Pvt. Ltd.'s appeal. The court found that ESIC violated principles of natural justice by dismissing the appeal without granting a hearing, despite disputed facts about when the company received the original order. The court also ruled that ESIC's order was flawed as it relied on an undisclosed committee report. Thus, the matter was remanded to the ESIC Appellate Authority for fresh adjudication. Background Mondelez India Foods received a show cause notice from ESIC, proposing a claim of Rs. 20 Crores for omitted wages during 2014-2016. The company contested this claim, and argued the assessed expenses weren't 'wages' under Section 2(22) of the Employees' State Insurance Act, 1948. Following this, ESIC passed an order reducing the claim to Rs. 75 Lakhs. However, it added new contribution heads not in the original notice. Aggrieved, Mondelez filed an appeal under Section 45AA of the ESI Act against the order. Section 45AA provides a 60-day window from receipt of an order to file an appeal. Mondelez submitted their appeal on July 24, 2019. They claimed they only received the order on May 27, 2019, which would make their appeal timely. However, on September 11, 2019, ESIC asked Mondelez to provide evidence regarding the timing. Despite Mondelez submitting an acknowledgment showing May 27 receipt, ESIC rejected the appeal. ESIC claimed that according to their records, Mondelez had received the order on May 24, making the appeal time-barred. Mondelez then approached the ESI Court, which sided with the ESIC in its judgment. Aggrieved by this decision, Mondelez filed an appeal to the Bombay High Court under Section 82 of the ESI Act. Arguments Mr. S.C. Naidu represented Mondelez, and argued that the rejection was unlawful. He submitted that ESIC didn't consider evidence showing the order was received on May 27. He further argued that Mondelez never got a hearing before ESIC dismissed the appeal, and the Section 45A order relied on a report Mondelez never received. He also pointed out that ESIC added new wage heads that weren't in the original notice, which denied Mondelez a chance to contest them. Mr. Shailesh S. Pathak appeared for ESIC. He maintained Section 45AA doesn't allow condoning delays beyond 60 days. He claimed Mondelez failed to provide sufficient evidence to the ESI Court. He defended ESIC's actions, and argued that all processes were followed correctly. Court's Findings First, the court held that ESIC violated the principles of natural justice. It noted that the ESIC wrongly rejected Mondelez's appeal without giving them a hearing, especially when the facts about when the order was received were disputed. The court noted that while Section 45AA doesn't explicitly require an oral hearing, it doesn't prohibit one either. It ruled that since ESIC asked Mondelez for evidence about the timeline, it should have considered the evidence before dismissing the appeal. Second, the court ruled that ESIC's order was vitiated. It noted that Mondelez never received a particular committee report that formed the basis for the order. It held that relying on undisclosed reports violates the right to be heard. Referring to Small Gauges Ltd. vs. V.P. Ramaiah (Bombay High Court, W.P No. 3775 of 1995), the court observed that all documents relied upon by a department must be provided to the affected party before drawing any conclusions. Thus, since Mondelez didn't get a fair chance to contest ESIC's assessment, the court held that the order was unsustainable. Third, the court noticed ESIC added wage heads in the final assessment, which were not a part of the original show cause notice. The court emphasized that a show cause notice must fully inform an entity about the case against it. It explained that the purpose of a show cause notice is to make the party aware of all allegations so they can properly respond. By going beyond the initial notice, the court held that ESIC deprived Mondelez of its right to respond. Thus, the court allowed the appeal and quashed the ESIC's order. It remanded the matter to the ESIC Appellate Authority for fresh adjudication. The court directed ESIC to grant Mondelez a hearing and decide the appeal on merits. Case title: Mondelez India Foods Pvt. Ltd. v. Deputy Director, Employees' State Insurance CorporationCitation: 2025 LiveLaw (Bom) 99 Counsel for the Appellant: Mr. S.C. Naidu, Ms. Samiksha Kanani, Mr. Abhishek Ingle, and Mr. Pradeep Kumar Counsel for the Respondent: Mr. Shailesh S. PathakClick Here To Read/Download The Order

Bombay HC Sets Aside ESIC Order For Denying Hearing And Relying On Undisclosed Reports

Pranav Kumar

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